august 28, 2009 tim brown world bank, indonesia · 2017-06-08 · low carbon indonesia - may 20,...
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Low Carbon Indonesia - May 20, 2009 p. 1
August 28, 2009
Tim Brown
World Bank, Indonesia
2
Indonesia: Climate Change Accomplishments
• Rationalizing energy pricing and reducing deforestation; putting
stronger programs in place for the future
• Developed tax break system and soft loans to encourage adoption
of pollution control technology
• In May 2008, reduced fuel subsidies, thus increasing incentives to
conserve fuel and reduce emissions.
• In June 2008, published blueprint for integrating climate change into
national development planning and budgeting process.
• In July 2008, established National Council on Climate Change as a
center for policy coordination
• Included climate change in annual work plan, budget notes and
medium term development plan
3
Why Development with Low Carbon?
Promote Sustainable Development
• Reducing emissions can provide financing for alt development paths
• Co-benefits for health, congestion, forest environmental services
Prepare for Future
• Competitiveness: Energy efficiency for cleaner, cheaper production
• Int‟l markets: Keep & gain markets by reducing deforestation
• Energy security: Reduce fuel imports; develop own resources
Access Financing, Potentially $ Billion/yr
• Climate Investment Funds: low cost finance for transformation
• Carbon markets: REDD/Forest Carbon = high potential
• Investment Climate: Stimulate private sector role to greener path
Develop Indonesia’s Own Low Carbon Alternatives
• Vast renewable energy resources: geothermal, hydro, biomass
• Low/no cost alternatives in gas flaring, transport, energy efficiency
4
Indonesia’s Emissions Profile: Fossil Fuels, Sources, Sectors: Looking Ahead
Emissions growth > Energy growth > GDP growth
Emissions will double every 12 years: 4x by 2030
Coal = major power source: increasing carbon intensity
Overall and per capita emissions are low (from fossil fuels)
IndustryElectricity
Transport Residential
Gas
Oil
Coal
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
ID: Emissions by Fossil Fuel and Using Sector
(Source: IEA 2004 in MtCO2e)
Gas
Oil
Coal
Fastest
Growing
Component
Largest
CompontLargest
Using Sector
Industry = largest emitter
• Inefficient fuel use
• Subsidized energy prices
Power = fastest growing
• Shift to coal in “10,000 MW”
Transport = Largest fuel user
• Fast growing; Mainly vehicles
Residential
• Potential future growth
5
Key Findings on Fossil Fuels: No Regrets?
Fossil Fuel/Energy Issues: Well Understood
• Low Carbon add new lens, but not different fundamental options
• Climate Change offers incentives to improve, plus political will
Policy Options Debated Before “Low Carbon”
• Energy Price Subsidies: Large budgetary implications; Impacts on
competitiveness & efficiency
• Investment Climate: Incentives for new energy investment, energy
efficiency, renewables are distorted due to pricing issues
• Energy Waste / Emissions: Some options are low cost/no cost:
energy efficiency, gas flaring, renewable energy development
• Transport: Fuel quality & vehicle emissions standards; Many
countries have adopted for health, local air pollution reasons
6
Indonesia’s Emissions Profile: Forestry and Land Use, Looking Forward
High deforestation, illegal logging,
forest fires, peat loss
Emissions = high, but uncertain
(fires, peat, degradation rates)
Recently: Deforest rate has declined
Indonesia: Deforestation and Degradation
Deforestation Rate (M ha/year)
0
0.5
1
1.5
2
2.5
3
1982 -
1990
1990 -
1997
1997 -
2000
2000 -
2006
Mil
lio
n H
a p
er
Ye
ar
Forest Loss During 2000-2005, By Province
Top 10 Provinces Account for 83% of Forest Loss
(Total Loss = 3.5 M Ha, IFCA Analysis & Assumptions)
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Ria
u
Kalim
Cen
tral
Sum S
outh
Sum N
orth
Kalim
Eas
t
Papua
Eas
t
Jam
bi
Kalim
Wes
t
Kalim
Sou
th
Lam
pung
Millio
n H
a L
ost
2000-2
005
Cumulative Area Lost from Swamp Forest
Cumulative Area Lost from Dry Forest
Total Forest Loss during 5 year period
REDD = Opportunity & Incentive
• Indo: Int’l negotiations, FCPF & FIP
• Potential ~ $ Billion could be gained
• Needs ++performance & governance
• Good donor engagement & financing
Greatest areas of concern:
• 10 Prov > 78% Forest & Peat Loss
• Sumatra & Kalimantan, Papua next
• Economic use of forest & swamps
• Conversion for plantations + FIRE
• Peat drainage = long term problem
7
Key Findings on Forestry: No Regrets?
Forestry Issues: Long Analyzed, Well Understood
• Forest carbon mkts (REDD) offer new $ incentives for improvement
• But, no magic bullet: Payment is based on performance
Policy Options Debated Before “REDD” / Climate Change
• Improved forest law enforcement, management & governance (also
fundamental for any REDD scheme)
• Realigned incentives for timber harvesting and processing firms, to
improve competitiveness & economic returns
• Forest & land fire control: Smoke and haze cause high health
costs, transboundary issues, loss of assets
• Equity & transparency in forest/land use decisions (also
fundamental for any financing and distribution mechanism)
• Independent monitors of legal compliance, participation
8
S UMAT E R A
J AVA-B AL I
K AL IMANT AN
S UL AWE S I E AS T E R N INDONE S IA
Low Carbon: Economic Impact Analysis Framework“Inter-Regional System of Analysis” - IRSA-INDONESIA-5 CGE Model
• Bottom up Inter-Regional CGE, based
on IRSAM - 2005 GOI I-O table
• Models trade, factor flows, gov‟t
transfers
• Income distrib: Top-down exp based
(100 rural & urban classes/region)
• Carbon emissions: fossil-based
consumption only
• Dynamic to 2050; based on,
• CSIRO/ANU w/ Bappenas, AUSAID
Policy Scenarios for Simulation
• REDD: Reduce deforestation rate
• GHG Emissions: C tax w redistrib
• Fuel price rise: W redistrib/
compensation
• Energy efficiency: Industry/sector
targets/policies
Indicators available: Poverty, Growth, GHGs, GOI revenue, 35 sectors,
gains & losses, but not deforestation
9
Economic Scenario Analysis:Some Preliminary, Interesting Results
REDD/Forestry
• Reducing deforestation off Java, reduces forest products, affects
econ activity on Java
• Without targeted transfers … forest-rich regions gain, forest-poor
regions may lose; … rural areas gain much more than urban
• REDD payment distribution mechanism matters: households
consume, governments invest in infrastructure and growth
Energy/Fossil Fuels
• Carbon Tax: Raises fuel prices, restructures economy; But
revenues raised can be redirected to mitigate downside
• Fuel Price Increase (subsidy down): Affects middle class more
than poor (use less energy); Compensation through cash transfer
helps
Low Carbon Indonesia - May 20, 2009 p. 10
Manufacturing Sector Emissions Targets for Reductions, Energy Efficiency
3 - tier screening: Seeking carbon targets that make sense from
environment, econ development, & financial point of view
Specific policies can be targeted to different sectors
• Regulatory approaches: Efficiency standards, best practices
• Fiscal measures: Subsidy/tax incentives, investment climate
• Legal and labeling: Env reporting, stimulate carbon markets
• Voluntary: Education/ awareness of win-win choices
Access Carbon
Markets
Competitiveness,
Growth
Energy & Cost
Savings
343
Industrial
Sectors
Environmental
Screen
Socioeconomic
Development
Screen
Economic Efficiency
Screen
8+9
Target
Sectors
11
Manufacturing: 3 Tier Screening Summary
Screening Criteria:
Environmental
• GHG Emissions
• Natural Gas Use
Econ Development
• GDP & Growth
• Output Multiplier
• Linkage Index
Energy Efficiency
• Energy Opportunity
• Improvement Capacity
• High energy costs
High Priority
1.Cement
2.Weaving Mills
3.Textile Fiber
4.Ceramic Tile
5.Fertilizer
6.Crumb Rubber
7.Finished Textiles
8.Cooking oil
Medium Priority
1.Steel Rolling
2.Iron & Steel
3.Pulp
4.Auto Parts
5.Spinning Mills
6.Cultural Paper
7.Tires/Inner Tubes
8.Cooking Oil
9.Basic Chemicals
Industry Targets for Policy/Action
Already priority targets of Ministry of Industry
Opportunity for integrated policies & investments
12
Key Policy Approaches for Targeting Emissions in Manufacturing
• Technology Investmt
• (MOI/GOI plans)
• Heavy Industry
• Large Firms
• Tax deductions
• Carbon Mkt (CDM)
• Depreciation Incentive
Approach Target MOF Entry Point
• Energy Efficiency
Deployment
• Establish EE
Targets
• Med. Industry
• Energy
Service Cos
• Tax breaks for ESCOs
• Soft loans for Energy
Efficiency
• Minimum Efficiency
Standards
• Common equipment
• Refrigeration,
lights, motors
• SMEs also
• Grant program for key
technologies
• Tax incentives for high
efficiency purchases
13
Env services with economic value
• Direct: water supply, soil fertility,
pest control, local livelihoods
• Indirect: watershed & biodiversity
protection, carbon sequestration
Forestry Sector & REDD:Analysis of Fiscal Contributions & Policy Options
Dept of Forestry Revenues by Source (1999-2003)
Reforestation
Fund
62%Interest on RF
(DR)
10%
Forest
Resource Levy
27%
HPH & HTI
License Fees
1%
Fines, Wildlife,
and Tourism
0%
Large contributor to economy, jobs
• GDP: Rp 91.2 tr or 3.3% (2005)
• Forex: US$ 6.18 bn or 6.1% (2006)
• GOI Rev.: Rp 2.40 tn or 0.4% („06)
REDD = New incentive, opportunity
• Potential revenue depends on areas Involved, ~= econ contribution
• 0.5 M ha: $200 – $1,200 million/yr (compare GOI tax revenue)
• 1.0 M ha: $400 – $2,400 million/yr (compare other sectors)
14
Forest Fiscal Policies: Current Status
• Inefficient fiscal mechanisms, low recovery, poor incentives
• Losses of tax and non-tax revenue through illegal logging
• Under-reporting of harvest and tax / non-tax obligations
• Royalties on legal timber are below economically efficient level
Forest Fiscal Policies: Highly Relevant to REDD Discussion
• Incentives can improve forest mgmt, decrease deforestation
• REDD offers potential for payments for emission reductions
• Carbon market payments/compensation: needs careful design
Need study of opportunities for improving mgmt, increasing revenue, efficiency, sustainability; benefits from forest C mkts
Need targeted incentive improvements for success of REDD
Australia, UK and other donors are assisting
Fiscal Management Matters for Forest Management
15
Transport Sector: Overall Emissions & Assessment
• Transport = 23% of GHG fossil emissions
• Road transport (cars, trucks,
motorcycles) = 88 percent of this
• Transport is the largest user of liquid fuel:
Bensin and Diesel
• Emissions are projected to double within
10 years: addition of cars and trucks
• Motorcycles = largest numbers, but cars
& trucks cause most emissions (and
growth will increase the gap)
Many co-benefits of addressing transport issues:
• Reduced congestion and associated time and productivity losses
• Reduced dependence on imported fuels: Energy security
• More convenient and efficient public transit options
• Home-grown successes: Transjakarta Busway
• Neighboring countries provide examples of cost effective reforms
Low Carbon Indonesia - May 20, 2009 p. 16
Basic steps to future improvements & integrated strategy:
tighter standards, Fiscal incentives, technological improvements, modal shift
17
Low Carbon Opportunities for Indonesia
• Better mgmt for forestry sector: improved
incentives, revenue, asset values
• Leverage investment in energy infrastructure
• Avoid long-term liability of high-C
infrastructure
• Econ stimulus for “green recovery”
• International climate finance toward lower
carbon development pathway